## Facts

- VISX, Inc. developed laser vision-correction devices and charged a $250 per-procedure fee tied to use of its patented excimer laser system.
- A competitor, Nidek, obtained FDA approval to sell competing devices without a per-procedure fee, creating pressure on VISX’s pricing model.
- VISX filed patent-infringement actions against Nidek in federal court and before the International Trade Commission (ITC).
- After an ITC trial, an administrative law judge found Nidek did not infringe and concluded a core VISX patent was invalid due to failure to name a co-inventor.
- Following the adverse ITC ruling, VISX announced a reduction in its per-procedure fee and its stock price declined sharply.
- Shareholders who purchased during the alleged class period sued VISX and certain officers/directors under Exchange Act §§ 10(b), 20(a), and 20A and Rule 10b-5, alleging overly optimistic statements and omissions about patent strength and sustainability of the fee model.
- The district court dismissed the complaint without leave to amend for failure to meet the PSLRA’s heightened pleading requirements; plaintiffs appealed.

## Issues

1. Whether the complaint pled with particularity facts supporting a strong inference of scienter and materially false or misleading statements or omissions, as required by the PSLRA.
2. Whether, in assessing PSLRA scienter, a court must consider competing non-culpable inferences from the alleged facts at the motion-to-dismiss stage.

## Decision

- The Ninth Circuit affirmed dismissal of the complaint.
- The court held the allegations did not create a PSLRA “strong inference” that defendants acted with intent to deceive or deliberate recklessness.
- The court held the alleged misstatements and omissions were not pled with sufficient particularity to show falsity and contemporaneous knowledge.
- The court approved considering both culpable and innocent inferences and rejected treating a merely plausible inference of fraud as sufficient.
- The court affirmed dismissal without leave to amend.

## Legal Principles

- Under the PSLRA, a securities-fraud complaint must plead with particularity facts giving rise to a strong inference that each defendant acted with the required state of mind.
- In evaluating whether scienter is strongly inferred, courts consider all reasonable inferences from the allegations, including inferences unfavorable to plaintiffs; a fraudulent inference that is no more compelling than innocent explanations is insufficient.
- Corporate optimism, forward-looking statements, and generalized reassurances are less likely to be actionable absent particularized allegations that defendants knew specific contrary facts when they spoke.
- A later adverse outcome (e.g., administrative loss and stock decline) does not, without well-pled contemporaneous facts, establish that earlier statements were fraudulent when made.

## Conclusion

The Ninth Circuit held that the shareholders’ allegations, largely relying on an later ITC loss and ensuing stock drop, failed to plead falsity and a strong inference of scienter under the PSLRA, and it affirmed dismissal of the Exchange Act claims without leave to amend.


Gompper v. VISX, Inc., 298 F.3d 893 (9th Cir. 2002)